Euro: Looking for direction against US Dollar – Commerzbank

Commerzbank’s Volkmar Baur notes EUR/USD is struggling for clear direction as the Iran conflict, Oil prices, and diverging inflation dynamics cloud the outlook. He highlights a strong link between Oil and ECB rate expectations, while the Fed faces falling inflation and AI-driven productivity hopes. With upcoming ECB and Fed meetings, EUR/USD is seen staying in a sideways trend.

Cross stuck in confused sideways trade

"The euro side therefore seems to be looking to the oil price for guidance. At least that’s what the renewed strong correlation between the oil price and ECB interest rate expectations for December suggests. For the US dollar, however, things are even more complicated right now."

"The strength of the US dollar depends, at least in part, on its role as the world's leading currency and the world’s most important reserve currency. Part of the foundation of these functions is trust in the US and the US dollar. And that trust seems to be increasingly eroding."

"As we’ve mentioned before, this situation could very well persist for a while. The ECB and Fed meetings are scheduled for the next two weeks. However, we expect it will still be too early for the ECB to lock in another rate hike, while it’s likely too early for the Fed to adopt a more dovish tone just yet."

"EUR/USD could therefore remain stuck in a sideways trend for a little longer."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)